Not knowing how to obtain financing for your business can be a huge hindrance to growth. You may see, what in your mind, is a great opportunity to create wealth for yourself and others. It could be some real estate deal in your own or some foreign country; or you have one of those “eureka” moments for a product or service that provides exciting possibilities. Unfortunately you have absolutely no money to carry this through to reality. This is where knowing how to organize an OPM can get you the initial funding needed to launch your project.
OPM stands for Other People’s Money. If you truly feel passionate about your project and have done your homework on competitive offerings, market acceptance, preliminary survey of consumers and potential customers it becomes a matter of persuading those with money to get involved. At this stage of development the established avenues of funding such as banks and other financial institutions cannot be targeted because they are not risk takers and need existential proof of success in the short and long term. Many budding entrepreneurs are prevented from going further, as the money obstacle seems insurmountable to them.
This is the time to build what is referred to as an investment deck – or a platform from which you can solicit funds from private individuals or non-establishment investors. A deck consists of a detailed business plan, which clearly states the goals and objectives of the business, defines the market in terms of product/service, price, place and promotion, analyzes the competitive landscape, defines the uniqueness, benefits, and features of the new business, describes the strengths, weaknesses, opportunities and threats, and places this all in a financial context.
The latter requires help from an accountant so that realistic projections of revenues, costs and profits can be made that will withstand careful scrutiny. A three year projection that includes a profit and loss statement and balance sheet is a prerequisite. This is not only necessary for the potential investors but also provide a guideline for the founders.
Once the investment deck is in place it now becomes a matter of targeting investor groups who may be persuaded to join you in developing and bringing your ideas to market. This involves a carefully honed presentation strategy, which effectively uses the information in the investment deck to solicit funding. Passion, commitment, enthusiasm supported by cold statistics are needed to win people over to your cause.
Fortunately banks are not the sole source of initial funding for a business – Many of the world renown companies started as basement or garage operations that were launched through the help of ordinary individuals or organizations that provide platforms to raise funds. There are many sources of this type of assistance, each will require a slightly different approach:
Friends and relatives – These people know you and hopefully trust you. You will want to minimize the risks to any one person by soliciting money from many individuals in this group. The proposal may involve shares or loans, depending on the individual’s preference. Keep in mind that when accepting funding from this group you are risking treasured relationships that may be jeopardized if the business fails.
To minimize this, make sure that they are investing discretionary money that they can afford to lose if things go sour. No business is foolproof, and the best laid plans can be upset by shifts in the marketplace that are not foreseen at the outset. Being up front on possible risks reduces the consequences of negative outcomes.
The Indie approach – This uses the very successful online crowd funding platforms of which Indiegogo is one of the most prominent players. They have helped raise over a billion dollars in funding for start-ups in various business categories around the world. To launch a crowd funding campaign requires some preparation and initial funds but they are very reasonable, and can be organized on a shoestring budget.
One of the requirements is to create a video, which extols your product or services in a persuasive manner. The duration in which the solicitation takes place is limited and requires the full cooperation of the soliciting entity. The advantage of this form of funding is that you can reach a broad audience around the world, while at the same time making a special appeal to those people that personally know you. This applies not only to relatives and friends but also to the virtual friends on social media. Having a strong presence on such business platforms as Linkedin provides access to those that may themselves have been involved in the business launch process, and will thus be more receptive to the campaign.
Angel investors – are individuals who have set a personal mission for themselves to aid and incubate new business ideas and concepts. They have a more sophisticated approach in choosing where and how they place their money on risky ventures, but they are definitely open to new ideas. Usually, there is more interest in high tech proposals than other ventures, but this does not exclude the possibility of a sound business plan in established commercial or industrial sectors. Angel investors are usually involved in local business associations such as the chamber of commerce, and this is a good place to tap into this funding resource. A classified ad in a local newspaper can often ferret out this type of investor as they are always seeking new business opportunities.
Immigrant investors – Many countries offer a fast track to citizenship to foreigners who are capable of investing in new businesses. There is a minimum investment required, which is usually in the $500,000 + range. A good business plan, or/and a past record of success in business, or as an executive in a company related to the products and services in the proposal, is helpful. In most cases it is necessary to show that the new venture will provide additional jobs in the community where the investment is made. The commerce and industry development department in most countries would be a good place to look for these type of investors. Direct advertisement in South Asian classified ads is another avenue that can be followed.
Investment clubs – In most locations there will be some sort of formal or informal investment club, where people seek peer advice and group market analysis to make investments in stocks and bonds. Members of these clubs are usually less risk averse and therefore are more likely to welcome a presentation by a local entrepreneur with a good idea and plan. To locate these opportunity seekers ask around the neighborhood, or better still join the local chapter of the chamber of commerce where you will have a better opportunity of meeting them. Many are themselves involved in some business and understand the difficulties in acquiring seed or growth capital.
No money doesn’t have to be a show stopper if you have a great idea and a solid investment deck.